[Federal Register Volume 61, Number 241 (Friday, December 13, 1996)]
[Notices]
[Pages 65621-65623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31614]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22378; 812-10354]


Renaissance Capital Growth & Income Fund III, Inc. and 
Renaissance Capital Group, Inc.; Notice of Application

December 6, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: Renaissance Capital Growth & Income Fund III, Inc. (the 
``Company'') and Renaissance Capital Group, Inc. (the ``Adviser'').

RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 57(i) of 
the Act and rule 17d-1 thereunder permitting certain joint transactions 
prohibited by section 57(a)(4) of the Act.

SUMMARY OF APPLICATION: Applicants request an order to permit the 
Company to co-invest with certain affiliated entities of the Adviser.

FILING DATES: The application was filed on September 19, 1996, and 
amended on November 8, 1996, and December 6, 1996. By letter dated 
December 6, 1996, applicants' counsel stated that an amendment, the 
substance of which is incorporated herein, will be filed during the 
notice period.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on December 30, 
1996, and should be accompanied by proof of service on the applicants, 
in the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, 8080 North Central Expressway, Suite 210, Dallas, 
Texas 75206.

FOR FURTHER INFORMATION CONTACT:
Brian T. Hourihan, Senior Counsel, at (202) 942-0526, or Mary Kay 
Frech, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation.)

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. The Company, a Texas corporation, is a non-diversified closed-
end investment company that has elected to operate as a business 
development company (``BDC'') under the Act. The Company's primary 
investment objective is to seek long-term capital appreciation through 
investments in ``eligible portfolio securities'' (as defined in the 
Act). In addition, the Company seeks to structure its investments to 
provide an element of current income through interest, dividends, and 
fees whenever feasible in light of market conditions and the cash flow 
characteristics of portfolio companies. The investments strategy of the 
Company is to invest in a diversified portfolio of companies that have 
the potential for rapid growth in sales, earnings, and enterprise 
value. The Company expects, after the completion of the initial 
investment phase, to maintain a portfolio of investments in 10 to 20 
companies in diverse industries.
    2. The Adviser is a registered investment adviser under the 
Investment Advisers Act of 1940 and provides investment advisory 
services to the Company.\1\ The Adviser is responsible, subject to the 
supervision of the Company's board of directors, for administering the 
Company's business affairs. The adviser also serves as the investment 
adviser to Renaissance U.S. Growth & Income Trust PLC (``Renaissance 
PLC''), a public limited company organized under the laws of England 
and Wales. Applicants state that Renaissance PLC is not registered as 
an investment company in reliance on the exclusion from the definition 
of investment company in section 3(c)(1) of the Act. The adviser seeks 
to find investment opportunities for Renaissance PLC in smaller 
capitalized United States public companies with the potential for 
significant capital appreciation.
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    \1\ The Adviser also serves as the investment adviser to two 
other registered BDCs (Renaissance Capital Partners I, Ltd., and 
Renaissance Capital Partners II, Ltd.) which were fully invested and 
not actively pursuing investment opportunities.
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    3. The principals of the Adviser will select investments for the 
Company and Renaissance PLC separately considering in each case the 
investment of objectives, investment position, available funds, and 
other pertinent factors of the particular investment fund, including 
applicable investment restrictions and regulatory requirements. 
Applicants state that the Company and Renaissance PLC frequently may 
invest in the same portfolio companies in proportion to their 
respective amounts of capital available for investment.
    4. Applicants state that they would like the flexibility to co-
invest with additional private and public investment funds that may or 
may not be located in the United States and that share a common 
investment adviser with the Company. Therefore, applicants request an 
order pursuant to sections 6(c) and 57(i) of the Act and rule 17d-1 
thereunder to the extent necessary to permit the Company to co-invest 
with companies that are affiliated with the Adviser, including 
Renaissance PLC (each an ``Adviser Affiliate'').

[[Page 65622]]

Applicants' Legal Analysis

    1. Section 57(a)(4) of the Act prohibits certain affiliated persons 
from participating in a joint transaction with a BDC in contravention 
of rules as prescribed by the SEC. Section 57(b)(2) provides that any 
investment adviser, any person directly or indirectly under common 
control with a BDC, or any person who is, within the meaning of section 
2(a)(3) (C) or (D), an affiliated person of any such person shall be 
subject to section 57(a)(4). Under section 2(a)(3)(C), an affiliated 
person of another person includes any person directly or indirectly 
controlled by such person.
    2. Section 57(i) of the Act provides that, until the SEC adopts 
rules and regulations under subsections (a) and (d) of section 57, the 
rules and regulations under sections 17(a) and 17(d) of the Act 
applicable to registered closed-end investment companies shall be 
deemed to apply to sections 57(a) and 57(d). Because the SEC has not 
adopted any rules under section 57(a)(4), rule 17d-1 applies.
    3. Rule 17d-1, promulgated under section 17(d) of the Act, 
prohibits affiliated persons of an investment company from 
participating in joint transactions with the company unless the SEC has 
granted an order permitting such transactions. In passing on 
applications under rule 17d-1, the SEC considers whether the company's 
participation in the joint transactions is consistent with the 
provisions, policies, and purposes of the Act and the extent to which 
such participation is on a basis different from or less advantageous 
than that of other participants.
    4. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction from any provision of the Act if and 
to the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    5. Because Renaissance PLC and other Adviser Affiliates may be 
deemed to be subject to section 57(a)(4) of the Act, investments by the 
Company in a portfolio company in which an Adviser Affiliate, including 
Renaissance PLC, also invests may be subject to section 57(a)(4) and 
prohibited absent an order under rule 17d-1 under the Act.
    6. Applicants state that the obligations imposed on the Company's 
independent directors who are not ``interested persons'' as defined 
under section 2(a)(19) of the Act (``Independent Directors'') provide 
significant protection to investors against possible conflicts of 
interest in co-investments between the Company and Adviser Affiliates, 
including Renaissance PLC. Applicants believe that the conditions 
relating to the terms on which co-investments may be made as set forth 
in the application are consistent with the policies underlying the Act. 
Applicants also believe that the requested relief is consistent with 
the standards enumerated in section 6(c).

Applicants' Conditions

    Applicants agree that the requested order shall be subject to the 
following conditions:
    1. (a) To the extent that the Company is considering new 
investments, the Adviser will review investment opportunities on behalf 
of the Company, including investments being considered on behalf of any 
Adviser Affiliate. The Adviser will determine whether an investment 
being considered on behalf of an Adviser Affiliate (``Adviser Affiliate 
Investment'') is eligible for investment by the Company.
    (b) If the Adviser deems an Adviser Affiliate Investment eligible 
for the Company (a ``co-investment opportunity''), the Adviser will 
determine what it considers to be an appropriate amount that the 
Company should invest. When the aggregate amount recommended for the 
Company and that sought by an Adviser Affiliate exceeds the amount of 
the co-investment opportunity, the amount invested by the Company shall 
be based on the ratio of the net assets of the company to the aggregate 
net assets of the Company and the Adviser Affiliate seeking to make the 
investment.
    (c) Following the making of the determinations referred to in (a) 
and (b), the Adviser will distribute written information concerning all 
co-investment opportunities to the Company's Independent Directors. 
Such information will include the amount the Adviser Affiliate proposes 
to invest.
    (d) Information regarding the Adviser's preliminary determinations 
will be reviewed by the Company's Independent Directors. The Company 
will co-invest with an Adviser Affiliate, only if a required majority 
(as defined in section 57(o) of the Act) (``Required Majority'') of the 
Company's Independent Directors conclude, prior to the acquisition of 
the investment, that:
    (i) the terms of the transaction, including the consideration to be 
paid, are reasonable and fair to the shareholders of the Company and do 
not involve overreaching of the Company or such shareholders on the 
part of any person concerned;
    (ii) the transaction is consistent with the interests of the 
shareholders of the Company and is consistent with the Company's 
investment objectives and policies as recited in filings made by the 
Company under the Securities Act of 1933, as amended, its registration 
statement and reports filed under the Securities Exchange Act of 1934, 
as amended, and its reports to shareholders;
    (iii) the investment by the Adviser Affiliate would not 
disadvantage the Company, and that participation by the Company would 
not be on a basis different from or less advantageous than that of the 
Adviser Affiliate; and
    (iv) the proposed investment by the Company will not benefit the 
Adviser or any affiliate entity thereof, other than the Adviser 
Affiliate making the co-investment, except to the extent permitted 
pursuant to sections 17(e) and 57(k) of the Act.
    (e) The Company has the right to decline to participate in the co-
investment opportunity or purchase less than its full allocation.
    2. The Company will not make an investment for its portfolio if any 
Adviser Affiliate, the Adviser, or a person controlling, controlled by, 
or under common control with the Adviser is an existing investor in 
such issuer, with the exception of a follow-on investment that complies 
with condition number 5.
    3. For any purchase of securities by the Company in which an 
Adviser Affiliate is a joint participant, the terms, conditions, price, 
class of securities, settlement date, and registration rights shall be 
the same for the company and the Adviser Affiliate.
    4. If an Adviser Affiliate elects to sell, exchange, or otherwise 
dispose of an interest in a security that is also held by the company, 
the Adviser will notify the company of the proposed disposition at the 
earliest practical time and the Company will be given the opportunity 
to participate in such disposition on a proportionate basis, at the 
same price and on the same terms and conditions as those applicable to 
the Adviser Affiliate. The Adviser will formulate a recommendation as 
to participation by the Company in such a disposition, and provide a 
written recommendation to the Company's Independent Directors. The 
Company will participate in such disposition to the extent that a 
Required Majority of its Independent Directors determine that it is in 
the Company's best interest. Each of the Company and the Adviser 
Affiliate will bear its own

[[Page 65623]]

expenses associated with any such disposition of a portfolio security.
    5. If an Adviser Affiliate desires to make a ``follow-on'' 
investment (i.e., an additional investment in the same entity) in a 
portfolio company whose securities are held by the Company or to 
exercise warrants or other rights to purchase securities of such an 
issuer, the Adviser will notify the Company of the proposed transaction 
at the earliest practical time. The Adviser will formulate a 
recommendation as to the proposed participation by the Company in a 
follow-on investment and provide the recommendation to the Company's 
Independent Directors along with notice of the total amount of the 
follow-on investment. The Company's Independent Directors will make 
their own determination with respect to follow-on investments. To the 
extent that the amount of a follow-on investment opportunity is not 
based on the amount of the company's and the Adviser Affiliate's 
initial investments, the relative amount of investment by the Adviser 
Affiliate and the Company will be based on the ratio of the company's 
remaining funds available for investment to the aggregate of the 
Company's and the Adviser Affiliate's remaining funds available for 
investment. The company will participate in such investment to the 
extent that a Required Majority of its Independent Directors determine 
that it is in the company's best interest. The acquisition of follow-on 
investments as permitted by this condition will be subject to the other 
conditions set forth in the application.
    6. The Company's Independent Directors will review quarterly all 
information concerning co-investment opportunities during the preceding 
quarter to determine whether the conditions set forth in the 
application were complied with.
    7. The Company will maintain the records required by section 
57(f)(3) of the Act as if each of the investments permitted under these 
conditions were approved by the Company's Independent Directors under 
section 57(f).
    8. No Independent Director of the Company will be a director or 
general partner of any Adviser Affiliate with which the Company co-
invests.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-31614 Filed 12-12-96; 8:45 am]
BILLING CODE 8010-01-M